Stocks rally after jump in consumer confidence

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Published: August 25,2009

Tags: Business, confidence, Consumer, inflation, stocks

NEW YORK — Investors put stocks back on an upward path Tuesday, encouraged by news of a rebound in consumer confidence and more healing in the housing industry.

Major stock indexes rose nearly 1 percent in early afternoon trading, led by gains in financials, retailers and homebuilders. Energy and utility stocks fell as oil prices cooled following a recent surge.

Investors got better-than-expected readings Tuesday on two of the most problematic parts of the economy: consumers and housing. The day’s news reinvigorated the market after stocks hit a lull on Monday, closing little changed after four days of gains that took the major indexes to new highs for the year.

“The upward trend has still not broken in the market,” said Brian Daley, sales trader at Conifer Securities.

The Conference Board’s Consumer Confidence index rose to 54.1 this month from an upwardly revised 47.4 in July and far above the 47.5 reading analysts expected. The reading is still a long way from showing that consumers are actually feeling optimistic about the economy amid ongoing worries about job losses. But it suggests Americans’ pessimism about the economy is abating.

Meanwhile, the Standard & Poor’s/Case-Shiller’s U.S. National Home Price Index rose 1.4 percent in the second quarter from the January-March period, the first quarterly increase in three years. Home prices, while still down almost 15 percent from last year, are at levels last seen in early 2003.

The improvements in consumer confidence and housing are related. If consumers are feeling better about the economy, they will be willing to spend a little more on houses, not to mention cars, appliances and other goods and materials. Investors’ concerns about flagging consumer confidence have triggered bouts of stock selling in recent weeks.

Stocks also got a boost from President Barack Obama’s reappointment of Ben Bernanke as Federal Reserve chairman. Bernanke’s reappointment, though expected, came sooner than anticipated and removed any uncertainty about a potential replacement.

In early afternoon trading, the Dow Jones industrial average rose 87.29, or 0.9 percent, to 9,596.57. The Standard & Poor’s 500 index rose 9.55, or 0.9 percent, to 1,035.12, while the Nasdaq composite index rose 18.22, or 0.9 percent, to 2,036.20.

About three stocks rose for every one that fell on the New York Stock Exchange, where volume came to 567 million shares.

In other trading, the Russell 2000 index of smaller companies rose 6.41, or 1.1 percent, to 586.65.

Stocks were little changed Monday after four days of gains that took the Dow up 370 points. The market gave up early gains as financials retreated. Regional banks were especially hit hard amid concerns about potential mounting losses from commercial real estate.

The gains on Tuesday follow a trend seen in the market throughout the summer, where any dip in stocks or pause in trading is met with more buying as investors fear missing out on an extended rally. Though analysts have been warning of an eventual pullback in stocks after a 52 percent climb in the S&P 500 since early March, the market has yet to see a significant slide.

The stair-step advance has been encouraging to analysts, who see it as a sign of strength in the market.

“It’s constructive that we’ve basically broken out to a new high and we’re kind of consolidating and working slowly higher,” said Nick Kalivas, vice president of financial research at MF Global.

Shares of major homebuilders surged after the home price data. Hovnanian Enterprises Inc. jumped more than 6 percent, adding 27 cents to $4.56, while Lennar Corp. rose 77 cents, or 5.3 percent, to $15.34.

Financial stocks rebounded after sagging on Monday in response to a downbeat analyst’s report. JPMorgan Chase & Co. rose 96 cents, or 2.2 percent, to $43.97, while Bank of America Corp. rose 44 cents, or 2.5 percent, to $17.79.

Retailers also posted big gains. Shares of Big Lots Inc. surged nearly 8 percent, adding $1.91 to $25.94 after its second-quarter results beat analysts’ expectations and the discount retailer raised its full-year earnings forecast. Best Buy Co. jumped $1.54, or 4.3 percent, to $37.35.

Oil prices dipped 87 cents to $73.50 a barrel on the New York Mercantile Exchange.

Bond prices fell as the Treasury Department prepared to issue $42 billion in two-year notes. A total of $197 billion in Treasurys will be auctioned off throughout the week as part of the government’s ongoing efforts to fund its economic stimulus programs.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.51 percent from 3.48 percent late Monday. The yield on the two-year note rose to 1.06 percent from 1.03 percent.

The dollar mostly fell against other major currencies, while gold prices rose.

The gains in the U.S. came amid mixed trading in overseas markets. Asian markets fell on more economic concerns in China, while European markets moved slightly higher.

Japan’s Nikkei stock average fell 0.8 percent. Britain’s FTSE 100 rose 0.4 percent, Germany’s DAX index rose 0.7 percent, and France’s CAC-40 gained 0.8 percent.

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